Last month’s decision from the Supreme Court in McDonnell v. United States takes federal prosecutors to task for applying federal criminal corruption laws in too broad a manner. The Court’s decision makes clear that distasteful or offensive conduct does not necessarily rise to the level of criminality. The Court’s insistence on a “specific and focused” benefit suggests that the government may have to rethink prosecutions ranging from all forms of bribery as well as insider trading.

The Court’s decision in McDonnell dramatically narrows the scope of political corruption laws and is almost certain to have a significant ripple effect to federal bribery laws in general. All are based on the concept of quid pro quo, or “this for that” – the exchange of one thing for another.

In McDonnell, the government alleged a quid pro quo sale of “official action” – payments (the quid) made to McDonnell, the former governor of Virginia, in return for a promise or undertaking by McDonnell to perform an official action (the quo). The Court’s decision focused on the quo side of the equation – a side that does not often receive much scrutiny – analyzing the contours of whether the actions taken by McDonnell constituted illegal “official actions.”

The highly-anticipated decision in McDonnell takes issue with the government’s limitless application of the federal corruption statutes to prosecute McDonnell for honest services fraud and extortion under the Hobbs Act. While he was governor, McDonnell and his wife accepted approximately $175,000 in loans, gifts and other benefits from Virginia businessman Jonnie Williams. Williams, the CEO of a Virginia-based company that developed nutritional supplements, asked the McDonnell’s for their help in obtaining research studies on the health benefits of one of his company’s products.

As the supposed quo, McDonnell arranged meetings between Williams and Virginia government officials, hosted and attended events designed to encourage Virginia university researchers to initiate said studies, directly contacted government officials in an effort to encourage said studies, promoted Williams company’s products and recommended that senior government officials meet with Williams to discuss how the company’s products might lower healthcare costs of public employees. The government asserted that these were “official acts” undertaken in exchange for the loans and gifts from Williams in violation of federal political corruption laws.

Writing for the unanimous Court, Chief Justice Roberts rejected the government’s position, observing that “conscientious public officials arrange meetings for constituents, contact other officials on their behalf, and include them in events all the time. The basic compact underlying representative government assumes that public officials will hear from their constituents and act appropriately on their concerns ….” For this reason, the relatively de minimis actions taken by McDonnell did not constitute “official acts” taken to advance Williams’ cause. To find McDonnell’s actions on behalf of Williams to constitute an “official act” under the corruption statutes would not only stifle democratic discourse, but render the statutes unconstitutional for failure to sufficiently define and provide notice as to what conduct is prohibited. “Under the ‘standardless sweep’ of the government’s reading, public officials could be subject to prosecution, without fair notice, for the most prosaic interactions.”

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McDonnell may have an impact on other political corruption cases working their way through the appellate courts. For instance, former New York Assembly speaker Sheldon Silver has argued that the actions underlying his May 2016 conviction are not criminal, but a normal and standard part of operating within the New York political system. Former Illinois governor Rod Blagojevich, who has been incarcerated since his corruption conviction for actions he took in office – most famously, using his office to sell the Senate seat left by President Obama – similarly has argued that routine “political horse trading” on his part does not amount to bribery. Like McDonnell, they assert that the alleged quo in their respective cases is not criminal.

The Supreme Court’s decision also is likely to reach beyond the realm of political corruption cases to all federal bribery cases requiring the government to prove quid pro quo. The federal bribery laws include the general federal bribery statute (18 U.S.C. § 201) as well as the myriad statutes that govern bribery of specific individuals – i.e., bribery of a bank examiner – or bribery in a specific context – i.e., in connection with the sale or distribution of alcohol or to induce the award of business from the federal government. Like bribery in the political corruption context, the prohibitions set forth in the other federal bribery statutes are linked to an individual’s position of power and ability to bestow a desired quo.

McDonnell also may have an impact on insider trading cases. The government must prove receipt of a personal benefit by the tipper to impose liability for insider trading. Under Second Circuit law, to prove receipt of such personal benefit, the government must show “a relationship between the insider and the recipient that suggests a quid pro quo from the latter, or an intention to benefit the [latter].” The Court’s strict definition of quo in McDonnell could support a more limited definition of the quo in insider trading cases as well, i.e., proof that the receipt of the alleged personal benefit is “specific and focused” to the alleged tip.

 

Individuals charged under these statutes can now point to McDonnell to argue that an overly broad interpretation of the relevant statute to include all positive or favorable actions toward the alleged quid provider is unconstitutional or that the alleged quo is not sufficiently defined or connected to the quid. An analysis of whether the quo actions taken by the accused rise to the criminal level will be fact dependent based on the nature of the position of power and the customs in that particular context. The Court’s analysis of these factors in the political arena in McDonnell can be used to draw parallels in bribery and other cases requiring receipt of a benefit.

Whether a given quo qualifies as criminal is generally the kind of fact-determination made by a jury at the end of a trial. Accordingly, most of these claims likely will be raised during trial in connection with the crafting of jury instructions. Perhaps the prospect of stricter jury charges can be used by defense counsel in the pretrial stage to convince the government not to bring charges at all. Those individuals who already have gone to trial can rely on McDonnell to challenge the jury charges in their case either on direct appeal or in a collateral attack of their conviction.

White-collar practitioners should be expansive in their reading of the McDonnell decision. The Court’s quid pro quo analysis can have far-reaching implications for not only political corruption and federal bribery cases, but any case requiring proof of a this-for-that exchange like insider trading. Federal prosecutors should no longer be permitted to rely on broad unfocused actions as proof of wrongdoing.

From The Insider Blog:  White Collar Defense & Securities Enforcement.